The Evolving Role of Air Charter Services in Global Trade”

Published: Monday, January 15, 2024

The World Trade Organization (WTO) in October had forecast that the volume of world merchandise trade would witness a 3.3% growth in 2024. But as we head to another year, this growth projection may not hold well as geopolitical tensions (protracted conflicts of Russia-Ukraine and Israel-Hamas) are expected to have an adverse bearing on trade, particularly sea lanes.

Four container-shipping companies—the French shipping and logistics company CMA CGM; German shipping giant Hapag Lloyd; Danish shipping behemoth Maersk; and Switzerland-based Mediterranean Shipping Company (MSC) have suspended their services in the Red Sea as shipping flows are affected due to attacks by Iran-backed Houthi rebels in a bid to force a ceasefire on Israel’s attacks against Gaza.

Israel continues to bombard Gaza with bomb attacks and military assault as it pursues the Palestinian militant group, Hamas, which attacked Israel on October 7, 2023, resulting in the death of 1,200 Israelis and the kidnapping of about 250 people, including foreign workers from Thailand and the Philippines. As of press time, nearly 23,000 Palestinians have lost their lives from Israel’s attacks and more than 58,000 have been injured.

Almost 10% of global trade sails through the Red Sea. The US has since created a multinational naval coalition force that will patrol the Red Sea and the Gulf of Aden in response to the Houthi attacks. More than 20 nations have joined the coalition so far. And major shipping firms like Maersk announced they will resume operations on the route.

In 2023, the cargo industry also faced severe challenges. The fall-out of the Russia-Ukraine conflict has been that Volga-Dnepr Airlines IL76 and An-124 fleets are not available in the EU, UK, or US markets due to the sanctions. Only 8 An-124 aircraft (seven from Ukraine and one from Maximus) are operational, but not fully. This certainly has hit capacities and also resulted in higher charter rates.

Macro-economic headwinds

Nevertheless, there has been a slowing down of demand due to macro-economic headwinds and a slowdown in global trade, according to the International Air Transport Association (IATA) which states that overall cargo tonne-kilometres are expected to remain below in 2023, compared to the previous year and the growth forecast for 2024 is 4.5%.

Industry leaders at the recent executive summit of The International Air Cargo Association (TIACA) pointed out weak demand, amidst rising capacities and lower rates, further accentuated by the impact of geopolitical tensions.

Going into 2024, air cargo demand could be flat. The Chief Cargo Officer of Turkish Airlines, Turhan Özen, while being optimistic about demand cautioned of geopolitical risks that could jeopardize demand. Similarly, Chief Cargo Officer of Brussels Airport Company, Geert Aerts, mentioned how the geopolitical situation in West Asia had pushed air cargo’s recovery back by a year.

Capacities available

It is here that the air charter operators play a crucial role in directing cargo business. Says Dushyant Mulani, Chairman of the Freight Forwarders Association of India that the charter business has to be fully aware of the happenings around the world, particularly geopolitical to ensure seamless transhipments.

The sales teams of air charters should be able to provide solutions to trade-in eventualities such as the Red Sea. There are capacities and there are aircraft available.

He mentions that demand is only in some sectors such as e-commerce, automotive and electronics which gets addressed by air cargo as speed of delivery is the criterion. It is for the air charter operators to look at other sectors, create demand, and service them. They are to be the beacons in the air cargo supply chain, even as the global air charter services market (all inclusive) is poised to touch nearly $30 billion by end-2023, with a compounded annual growth rate (CAGR) of 6.3% and $36.11 billion in 2027 with a CAGR of 5.1%.

North America continues to dominate charter market

There has been an increasing demand for cargo charters as they offer more destinations, and are reliable, secure, fast, and flexible. As per IATA, Global air cargo tonne-kilometres (CTKs) registered the third consecutive year-on-year (YoY) growth in October by 3.8%.

Compared to the pre-pandemic level, industry CTKs were 2.4% lower.  Air cargo capacity, measured by available cargo tonne-kilometres (ACTKs), increased by 13.1% YoY in October, owing to the continued strong return of international passenger belly capacity, thus industry ACTKs surpassed 2019 levels by 2.8%. The demand for air cargo is a significant driver pushing the air charter services market growth with North America being a dominating region, followed by Asia-Pacific.

The Chief Executive of Air Charter Association, an industry body in the United Kingdom, Glenn Hogben, has attributed the growth to the higher demand in sectors such as e-commerce, electronics, oil and gas, and automotive, with special mention of growing routes being Asia and Europe.

For the air charter market to grow, product innovation is key and the charter operators have to think on their feet. One example of product innovation is the ACS Critical Time from the stables of the UK-based company Air Charter Services (ACS) which offers a comprehensive package of door-to-door service, incorporating integrated trucking solutions, on-demand cargo airplane charters, and next-flight-out alternatives.

Hogben says that the charter market is fairly disjointed and the Association is trying to bring cohesion and advises its members on looking at technologies to enhance charter efficiencies, while not neglecting traditional personal service.

Air charter’s many benefits

As mentioned earlier, air charter operators should have real-time access to aircraft movements worldwide, have an exhaustive database and have quick and reliable communication systems. One of the best examples of a charter company is Chapman Freeborn, an industry leader, which analyses routes, payloads, and timescale, proposing the most suitable cargo aircraft for freight forwarders. They also organize part-charters, backloads, and other commercially innovative solutions for ad hoc, peak-season, and project cargo. Added to that is the company’s leverage of volume buying power and airline relationships, ensuring competitive pricing.

Chapman Freeborn lists the many benefits of air charter and they include reliability; speed (advantageous for time-sensitive cargo such as perishable goods, urgent medical supplies, or emergency relief aid); flexibility (shippers can choose the departure and arrival times, routing and airports of their choice); more destinations (including remote locations, served and unserved regions); varying load capacities; security (less risk of theft, damage or loss, compared to flights that contain cargo from various vendors); tracking (charter providers offer web-based aircraft tracking); less warehousing (quicker transport times means less need for warehousing); less packaging (fewer packaging materials as cargo shipped in lightweight materials, compared to sea freight); cost-effectiveness; and viability (in times of crisis, such as the disruption in the Red Sea air charter is a viable option for cargo transportation).

2024 decent projections of cargo volumes 

The air cargo sector is poised to maintain an upward trajectory, though there are geopolitical issues that need to be kept on the radar. The 2024 projections, as per IATA, are an increase of cargo volumes by 4-5% in comparison to 2023; enhanced capacities as airlines are back to normal; digital adoption (blockchain and artificial intelligence integration) improving efficiencies; enhanced security; and move towards sustainability.

The slowdown in general air freight demand has increased charter capacity, causing a marked decrease in charter prices; although high fuel prices are preventing a return to pre-COVID rate levels.

Even as the sector grapples with fluctuations in fuel prices and geopolitical instability, the aviation sector is becoming innovative, trying to leverage AI enhancements and other technologies to drive efficiencies in charter operations and that is going to pay dividends over time.

In conclusion, air charter operators need to traverse 2024 with utmost care as rising geopolitical tensions in different parts of the world can negate growth, slow down e-commerce expansion, and global trade. Despite the flux of global trade, air cargo will remain an indispensable link, continually evolving, and innovating to address the demands of economies and it is for the charter operators to guide the shippers.